Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Casey’s General Stores Inc (NASDAQ:CASY), with a market cap of US$3.80B, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Let’s take a look at CASY’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CASY here. See our latest analysis for Casey’s General Stores

How does CASY’s operating cash flow stack up against its debt?

CASY has built up its total debt levels in the last twelve months, from US$838.24M to US$923.68M , which comprises of short- and long-term debt. With this increase in debt, CASY’s cash and short-term investments stands at US$76.72M for investing into the business. Moreover, CASY has generated US$459.27M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 49.72%, meaning that CASY’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CASY’s case, it is able to generate 0.5x cash from its debt capital.

Can CASY pay its short-term liabilities?

At the current liabilities level of US$446.55M liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.79x, which is below the prudent industry ratio of 3x.

Does CASY face the risk of succumbing to its debt-load?

CASY is a relatively highly levered company with a debt-to-equity of 98.86%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CASY’s case, the ratio of 5.97x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

Although CASY’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the mid-cap. Keep in mind I haven’t considered other factors such as how CASY has been performing in the past. You should continue to research Casey’s General Stores to get a more holistic view of the stock by looking at: